Economic debates rarely end with a T.K.O. But the great policy debate of recent years between Keynesians, who advocate sustaining and, indeed, increasing government spending in a depression, and austerians, who demand immediate spending cuts, comes close — at least in the world of ideas. At this point, the austerian position has imploded; not only have its predictions about the real world failed completely, but the academic research invoked to support that position has turned out to be riddled with errors, omissions and dubious statistics.

Yet two big questions remain. First, how did austerity doctrine become so influential in the first place? Second, will policy change at all now that crucial austerian claims have become fodder for late-night comics?

On the first question: the dominance of austerians in influential circles should disturb anyone who likes to believe that policy is based on, or even strongly influenced by, actual evidence. After all, the two main studies providing the alleged intellectual justification for austerity — Alberto Alesina and Silvia Ardagna on “expansionary austerity” and Carmen Reinhart and Kenneth Rogoff on the dangerous debt “threshold” at 90 percent of G.D.P. — faced withering criticism almost as soon as they came out.

Yet austerity maintained and even strengthened its grip on elite opinion. Why?

Part of the answer surely lies in the widespread desire to see economics as a morality play, to make it a tale of excess and its consequences. We lived beyond our means, the story goes, and now we’re paying the inevitable price. Economists can explain ad nauseam that this is wrong, that the reason we have mass unemployment isn’t that we spent too much in the past but that we’re spending too little now, and that this problem can and should be solved. No matter; many people have a visceral sense that we sinned and must seek redemption through suffering — and neither economic argument nor the observation that the people now suffering aren’t at all the same people who sinned during the bubble years makes much of a dent.

But it’s not just a matter of emotion versus logic. You can’t understand the influence of austerity doctrine without talking about class and inequality.

What, after all, do people want from economic policy? The answer, it turns out, is that it depends on which people you ask — a point documented in a recent research paper by the political scientists Benjamin Page, Larry Bartels and Jason Seawright. The paper compares the policy preferences of ordinary Americans with those of the very wealthy, and the results are eye-opening.

Thus, the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

Does a continuing depression actually serve the interests of the wealthy? That’s doubtful, since a booming economy is generally good for almost everyone. What is true, however, is that the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?

I hope not; I’d like to believe that ideas and evidence matter, at least a bit. Otherwise, what am I doing with my life? But I guess we’ll see just how much cynicism is justified.

26 comments:

Neither policies of government "austerity" NOR policies of increased government "profligacy" alone can REPAIR an economy BROKEN through government interference and manipulation of the CREDIT MARKETS. When the government creates CREDIT BUBBLES in the housing market, in the higher education market, or in the ENERGY market, the significance is HIGHER PRICES for ALL.

The argument, Krugman, you STUPID, STUPID TWIT is not between government spending or not spending... IT's THE CREDIT MARKET, STUPID! Now go apply some SWOUND MONETARY POLICY and RAISE the DAMN Interest Rate! You've completely destroyed what LITTLE remains of the FREE market with your ARTIFICIAL subsidy of the UNCREDITWORTHY BORROWER and stifled investment in any, heretofor PROFITABLE private enterprise!

"Observers such as Paul Krugman are mistaken when they point to European austerity measures and say such outcomes prove that cutting spending doesn't work. The fact is that spending generally hasn't been cut. Monti might have been elected on promises of cutting spending but, write Alesina and de Rugy at Forbes, "the Italian government implemented the wrong kind of austerity."

So the next time someone squawks that "austerity has failed in Europe!" ask them two questions: How much was spending actually cut and how much were taxes actually raised?

It's unlike him to withdraw from a dispute, since he's never between able to admit there's any possibility he might be wrong.

I have to admit Krugman's dignified, supremely confident assertions had me a bit flummoxed, because I -- being economically illiterate, as Ducky would insist -- do no have the technical knowledge and background that SilverFiddle, Finntann and others have that could refute Krugman's effrontery persuasively enough.

What I do know is that Krugman and all his ilk promote ideas that fly in the face of common sense, and so his confident support support of what-appears-to-be insanity MUST be a highly sophisticated, form of sophistry and guile.

Most leftist thinking -- as far as I have ever been able to discern -- seems to be an intense insistence that Black is White, Up is Down, North is South, West is East, Good is Bad, Ugly is Beautiful, Truth is a Lie - and VICE VERSA.

As a I said in the headlines: A PARALLEL UNIVERSE.

As I read Krugman's confident, polished prose, and try to take in all the plaudits he's earned and the myriad books and articles he's published that have drawn lavish praise from his peers in the academic community, I can't help but wonder if maybe I really AM wrong? How could it be otherwise if "The World of Highly Articulate Intellectuals, Prominent Thinkers and Academicians" hold this man and his theories in such high esteem?

Is Krugman a mountebank -- a charlatan -- a mere poseur -- or does he really BELIEVE what he says?

In either case it's enough to make an ordinary person such as myself -- but one who does have genuine curiosity and some capacity for thought -- question his sanity.

Does ANYONE know The Truth -- or are we ALL operating from positions derived entirely from PREJUDICE?

Why do you not consider yourself a sucker, Ducky? If you "play the game," as you call it, what makes you any different from the rest of us who derive benefits from investing our capital in various industries in the hope of earning profits?

If you think that I am not aware that we are NOT operating under a true Capitalist System, but rather one that has been rigged and corrupted by Crony Capitalists -- an infernal Power Bloc consisting of International Bankers, Owners and Distributors of Raw Materials, and High Government Officials these Oligarchs have Bought and turned into a gaggle Lackeys and Lickspittles, you're not as bright as I thought.

So yes the system is corrupt, but -- as you yourself, effectively said -- It's the Only Game in Town.

So how are YOU less of a "sucker" than any of the rest of us?

REALLY smart people can always manage to do well in just about ANY system. What you seem to have forgotten -- or perhaps never wanted to know -- is that they were able to do a great deal BETTER in OUR system -- as it was before the advent of The Great Meddlers -- than in any other the world has ever known.

The history of private ownership of domestic real estate tells the story brilliantly. How we rose to astonishing heights, and then fell into decline after the post-WWII euphoria subsided -- and the Progressive Chickens came home go roost.

We've gone from sod huts, lean-to's, and log cabins on the frontier, and the 16th Century houses in New England designed to house the Colonial craftsmen's adaptations of William and Mary-style furniture, to elegant Georgian, and Neo-Classical houses for successful tradesmen in the eighteenth-century, to commodious Georgian-style Plantation houses and the exaggerated glories of ante-bellum elegance in the Old South, to town houses, apartment houses of varying degrees of quality and tenements in the cities to big, comfortable three storey houses with wraparound porches on acreage in the small country towns surrounding the cities, to beautiful, elegantly appointed small-scale mansions in Colonial-Revival and pseudo-Tudor style on small suburban lots, to a large number of scaled down versions of the same, to cheaper and cheaper, smaller and smaller, stripped down distortions of earlier styles to the postwar phenomenon of cheap, cookie-cutter tract housing developments modeled on Levittown, and all the way down to the abysmal level of trailer parks and Section-8 housing.

The American Dream became moribund with the coming of cheap, architecturally undistinguished tract housing and effectively DIED with the establishment of the Trailer Park.

Meanwhile really BEAUTIFUL old homes built in saner, happier pre-Depression times, when it was still possible for an ambitious man with reasonable intelligence and good health to get ahead, are rotting away from neglect and go BEGGING on the real estate market in thousands of towns and hamlets all across the country, because most of the sources of support for this once-thriving-now-sadly-departed middle class life-style have vanished.

According to Wiki there are approximately 1.5 million US citizens worth a million dollars are more.

I'm no good at arithmetic, but out of roughly 300-million souls that seems a very small percentage. What is it? less than five-percent of the population?

But here's information I find more interesting:

Depending on how it is calculated, a million US dollars in 1900 is equivalent to 2006 US dollars of

$24,766,584.77 using the consumer price index,

$21,224,697.05 using the GDP deflator,

$114,128,571.43 using the unskilled wage,

$162,813,054.25 using the nominal GDP per capita,

$641,531,874.47 using the relative share of GDP,

Thus one would need to have a little over twenty million dollars today to have the purchasing power of a US millionaire in 1900, or more than a hundred million dollars to have the same impact on the US economy.

As Mr. Reagan said, "Inflation is the cruelest tax of all."

My pet peeve with our tax system is the way the bastards in Washington, DC refuse to consider indexing long-term capital gains for tax purposes. Instead, they tax you as though the gain were made at the same dollar value of the day you made the investment.

That's PREPOSTEROUS, but then so is everything else the develops in the Marxian Miasma that Poisons the Atmosphere surrounding the nation's crapitall.

Too bad Krugman never identified exactly who this "One Per cent" is. Why is it that people who speak down from their ivory tower to the sadly unwashed masses literally throw out labels that can mean almost anything to anyone—all depending upon your situation in life, your interpretation and insight into the world around you and if you have the temerity to differ from the supposed superior insights of the Paul Krugmans of the world, you must be wrong.

It should be evident Krugman is blowing smoke up the asses of his readers and listeners from his perch at the "newspaper of record" and his ivory tower at Princeton.

Let's try to identify who this one per cent is. Is it the people identified on say the Forbes 400 richest people of America or the world? They'd definitely be a group that most people would just automatically assume is the one per cent group referred to by Krugman. That would include the likes of Bill Gates and Warren Buffet. Or could it include the elite of the elite who are almost NEVER mentioned in stories for public consumption, at least where they could be identified as belonging to this group. I'm talking here about the likes of the Rockefeller family and their appointed generals in the war against humanity: Henry Kissinger, Zbigniew Brzezinski, Maurice Strong and George Soros.

Krugman would likely end up in a box at the bottom of the East River if he did start speaking out about those types, but this is more truly a war about a distinct group that differentiated America from the others, the engine that drove America to greatness and heights of individual achievement never seen before in the history of the planet—the middle class. This is the group that is ensnared in the net cast by the new elite and the object of the accusatory obfuscations of the likes of Paul Krugman, and his assistance in creating the new feudal overlord system lording it over the newly minted serfs to come out of the old deliberately collapsed economic world.

Here's an interesting reference from "the newspaper of record" that does print some names that should be considered part of the "one per cent". Although the item is a book review by John Kenneth Galbraith (economist) and is in ways a backhanded compliment to the author of the book "Red Carpet"because Galbraith is able to condescendingly state at times that he knows "because I was there".

"AN interesting scene or two in the 65-year history of relations between the United States and the Soviet Union has been played by an extraordinarily affluent group of Americans, namely Armand Hammer, Averell Harriman, Cyrus Eaton, David Rockefeller and Donald Kendall. (Mr. Kendall, the youngest and the only one who could conceivably require identification, is the man who brought Pepsi-Cola to the Russians in exchange for a variety of more stimulating intoxicants for the American market.) These men have had much closer relationships with the Soviet leadership than run-of-the-mill diplomats, foreign policy specialists or politicians. ''Red Carpet'' by Joseph Finder takes up the history of their Russian relationships."

"A large part of the book is concerned with the exceptionally durable Armand Hammer, whose association goes back to Lenin and, through his father, Julius Hammer, an ardent Soviet sympathizer and supporter, to the Revolution itself. But the central point of the story is that all of these men through their wealth -their unequivocal identification with capitalism -won an attention and respect in the U.S.S.R. that was not accorded to others, including anticapitalist friends. They were the American ruling class as the Russians would have it. All (including Mr. Harriman in the 1920's) did business with or for the Soviet Union, although none, with the probable exception of Mr. Hammer, seem to have made much money out of it. But then, money was not the motive, a matter to which I shall return."

The point here, to be taken to the bank, I guess, is that there is an elite group, that really is "the one per cent" that pulls the strings of their puppets like Paul Krugman to misdirect and dis-inform with the intention of keeping attention away from those that have been directing this charade for decades to the detriment of most for the benefit of the few—the "elect", so to speak.

FT: You've inspired a blog post from me that should be coming up next week.

This is called wisdom and common sense. More people used to have it:

"What I do know is that Krugman and all his ilk promote ideas that fly in the face of common sense, and so his confident support support of what-appears-to-be insanity MUST be a highly sophisticated, form of sophistry and guile."

John Mauldin: “Saying austerity doesn’t work is like complaining that the roof is leaking because someone else didn’t fixed it”.

I was under the impression that austerity is not supposed to produce growth; it is a way to reduce a fiscal deficit. It reduces growth in the short term. Krugman has little interest in reducing debt.

“Rogoff and Reinhart showed through their massive data collection and work on sovereign debt crises, published in "This Time Is Different" and elsewhere, debt is not a problem until it becomes one. And then it reaches a critical mass and you have what they called the Bang! moment.

Unfortunately, economists, including Krugman, do not have much idea of what kinds of events shift confidence and of how to measure that confidence vulnerability. However, looking back, at crises, “when an accident is waiting to happen, it eventually does”.” When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are”.

Yes, KP, but this policy of "monetizing the debt" -- i.e. government-approved production of COUNTERFEIT MONEY to pay off creditors -- produces greater and greater INFLATION, which of course reduces the PURCHASING POWER of the dollar. In other words because of government policies the dollar only keeps getting steadily reduced in value.

I don't think anyone's cracked macro-economics yet, in fact i doubt a really successful theory is possible, but I think Keynes came closest. Spending a deficit in a slump and holding back a surplus in a boom doesn't defy common sense in my opinion. Closing services that would cost a lot more overall to close down then reinstate than to keep open through this difficult period, such as libraries, does defy common sense.

Perhaps one of the problems is that so few (if any) nations hold back or pay off their debts in the good times; and thats what Keynes depends on.

As well, when debt creates assets, future generations at least get some benefit when they have to participate in paying the loan back. In the case of current consumption, they get none. In essence, debt applied to consumption is spending today rather than spending in the future. You are borrowing money to spend on goods and services in the “now,” with the promise to pay for that consumption later.

Gratuitous Displays of Extraneous Knowledge Offered Not To Shed Light Or Enhance the Discussion, But For The Primary Purpose Of Giving An Impression Of Superiority are obnoxiously SELF-AGGRANDIZING, and therefore, Subject to Removal at the Discretion of the Censor-in-Residence.